How does my deal compare to what you're currently underwriting?

Hey Everyone – Recently executed a PSA to acquire a Marriott hotel and am looking for some feedback from the institutional folks on here on how it stacks up return wise versus what you all are currently underwriting (hotel or any other real estate asset class).

For context, I’m just helping my family execute an exchange as we recently sold a building, so I don’t do REPE for a living, but do have general PE experience. Also, our family currently owns hotels and other asset types so we understand and are comfortable with hotels.  

Total PP inclusive of all fees/renovation estimates is ~$40m, trailing NOI is ~$3.3m so entry cap is ~ 8.2%. Loans are coming in around 63% LTV at ~7.2%. Assuming NOI holds at $3.3 in early years we’ll get about an 8% annual coupon. If we can grow NOI 5% per year for 5 years and sell at the same cap rate it’s a ~2.0x MoM. There are no promotes or anything so the gross returns go to us.

These rough returns are a little below what we targeted in prior years, mostly driven down by borrowing costs, but we have an exchange so the tax benefits significantly outweigh not doing a deal rn.

Appreciate your feedback!


Cap rate feels tight, seeing most deals at 9%+ t1 cap rate wise but would need to understand asset profile further to assess. That debt quote is spectacular and sort of negates cap rate as you’re getting a decent CoC there assuming ops hold steady. Most lenders are at S+600-800 for hotels these days and max 60% ltc. All in all doesn’t feel that bad on these very cursory details.


Are people missing the fact that reno's are included in his cost basis? I don't know about yall but to me, going in cap is NOI / Property Purchase price, not including finance fees, or renos. He might actually be at 9 or 9.5% cap depending on those amounts. 

"Total PP inclusive of all fees/renovation estimates is ~$40m, trailing NOI is ~$3.3m so entry cap is ~ 8.2%."


Really appreciate the thoughts. A few clarifications, our purchase price is below $35m adding the PIP/Renovation of $5m gets us to $40m. After getting some upside from the renovation and some savings from insurance our normalized year 1 NOI should be about $3.6m so about a 9% cap? Also this is in California, only a few miles from a popular beach so its a high barrier to entry market.  

Most Helpful

Edit: I just re-read your post and see that your family has lots of experience with hotels. So my post below doesn’t make as much sense. But whatever - I’ll leave my post with the point being… idk if those are good returns without knowing the full picture. 8% cap for certain assets is a steal and for others it could mean certain death. Just depends on non financial factors 

Is the labor union?

What are the demand drivers (hopefully it’s more than just the beach)?

What % non-group vs Group?

Youre close to the beach… what are the projected insurance costs like?

Is the deal going to be Marriott managed in addition to having a Marriott flag? Have you vetted OpEx with an experienced third party management company?

Do you have on-site parking?

How is the property performing compared to it’s peers (hopefully you saw an STR report)?

What is the new supply picture? Are you the only Marriott in the submarket?

What % of your revenue is F&B (I’m assuming low given the good financing terms)?

Have you had Ryan Tax provide an estimate for taxes going forward?

Since this is California… which side of the highway are you on? Are all of your peers on the better side of the highway?

How extensive is the renovation / PIP and which GC will be executing it? What’s their experience with similar projects? Will you be getting any key money? Who will be the day to day asset manager?

What do your sale comps look like? And it’s not as simple as pulling the cap rate off costar - sometimes sale prices will be misleading because there’s a ground lease, tax abatement, vacant land is thrown in with the asset sale, whatever… you may not pick up on it unless you talk to a local broker who has the inside scoop on the deal. 

No need to actually answer my obnoxious list of questions, I’m just illustrating a point:  the numbers rarely make or break a deal. It’s everything else that makes or breaks a deal. When you’re first learning real estate you’re thinking “this is easy, it’s like PE but more straightforward business plans and income statements”. But there’s more to it and you pick it up with experience. I’m also not a hospitality specialist at all so I’m probably just scratching the surface with this list.

Your deal could be great or it could be dog shit - just depends on everything else besides the numbers.


Again really appreciate everyone’s thoughts. I did look at quite a few deals and certainly found some 9%-10%+ cap rate deals but they were in markets like Montana or Colorado or Arizona (I stick to the west) where there is a steady supply of new hotels. And those are the hotels/markets that haven’t been able to grow revenues since 2019 this on a flat or downward NOI trend. For our limited service hotels if you can’t grow revenue you’re gonna get hosed on margins for a long time, so I’m opting to pay up for high revenue growth. 


A couple things. Do you have a verbal commitment or are you under contract at the 9 cap or you think it will close? Just make sure you are adjusting for taxes, I can see that being a pain. Something seems a bit off here, I dont see good product in Cali on the coast especially trading for a 9 cap. So just be sure to dig in and make sure you're not missing anything.

edit: nvm I saw you executed the PSA. I would just do your DD on this. A 9 cap seems to good to be true if its in a high barrier to entry such as you state.


Sint eaque impedit vero ut nisi. Eos cupiditate aut nam aliquam optio et neque beatae. Repellendus aliquid tempora ad iure nisi. Corporis et vel dolor velit perspiciatis alias quis.

Unde nihil quos rerum sit voluptatem voluptatibus nisi. Repellendus aut quis porro. Molestiae vel aut sunt ut voluptate. Repellendus reprehenderit maxime odit quia non pariatur.

Dolor sit deserunt magni deserunt. Quia accusantium magnam dolores aut repellat.

Career Advancement Opportunities

December 2023 Investment Banking

  • Lincoln International 01 99.6%
  • Lazard Freres (++) 99.1%
  • Jefferies & Company 02 98.7%
  • William Blair 12 98.3%
  • Financial Technology Partners 02 97.9%

Overall Employee Satisfaction

December 2023 Investment Banking

  • William Blair 04 99.6%
  • Lincoln International 10 99.1%
  • Moelis & Company 25 98.7%
  • Stephens Inc 11 98.3%
  • Jefferies & Company 08 97.8%

Professional Growth Opportunities

December 2023 Investment Banking

  • Lincoln International 01 99.6%
  • Lazard Freres 17 99.1%
  • Jefferies & Company 02 98.7%
  • Financial Technology Partners 06 98.3%
  • UBS AG 16 97.8%

Total Avg Compensation

December 2023 Investment Banking

  • Director/MD (6) $592
  • Vice President (34) $390
  • Associates (167) $258
  • 3rd+ Year Analyst (15) $187
  • 2nd Year Analyst (106) $168
  • Intern/Summer Associate (48) $167
  • 1st Year Analyst (322) $166
  • Intern/Summer Analyst (234) $95
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”


redever's picture
Betsy Massar's picture
Betsy Massar
Secyh62's picture
BankonBanking's picture
dosk17's picture
GameTheory's picture
CompBanker's picture
kanon's picture
Linda Abraham's picture
Linda Abraham
pudding's picture
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”